Regulator calls for more scrutiny of CDOR

The Investment Industry Regulatory Organization of Canada released its view of CDOR on Thursday.

Police wait for protestors to appear at a branch of Barclays Bank in Westminster, central London, July 4, 2012. Barclays chief executive Bob Diamond, who quit over an interest rate-rigging scandal, was questioned by British politicians about the bank's role in the Libor interest rate affair. REUTERS/Olivia Harris

Canada’s equivalent to the LIBOR rate should be subject to greater documentation and transparency, the watchdog for the investment industry said Thursday.

The recommendations from the Investment Industry Regulatory Organization of Canada are published in the results of its review of the Canadian Dealer Offered Rate, known as CDOR.

“There is a case in favour of reforming CDOR as a benchmark,” IIROC, as the regulator is known, concludes in the report.

IIROC’s recommendations include beefing up documentation around the rate, how it’s defined and calculated, and how those who set the rate are supervised to prevent manipulation.

CDOR is the benchmark index for bankers’ acceptances with a term to maturity of one year or less.

It is determined daily from a survey of eight participants and publicly disseminated by Reuters, IIROC said in its report. Increasingly, the rate is used in money markets and derivative markets for complex financial instruments such as futures contracts.

IIROC launched its formal review of CDOR in August, 2012, after a scandal erupted in the United Kingdom over LIBOR, the London interbank offered rate. LIBOR, which is controlled by the British Bankers’ Association, is the benchmark rate for trillions of dollars in lending in different countries, currencies, and complex financial instruments.

Barclays was fined $453 million (U.S.) by U.S. and British agencies last year for trying to manipulate LIBOR. Two of the bank’s top executives also stepped down.

IIROC and Bank of Canada representatives met with each of the firms to ask about process for determining the daily submission to CDOR and how “Chinese walls” address potential conflicts of interest, IIROC said.

“IIROC’s review was not intended as an investigation into potential wrongdoing or manipulation of the CDOR rate,” or to determine if CDOR is the appropriate benchmark for existing derivative and other products, the regulatory agency said.

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